Venezuela is 'kicking the can further down the road'

A
man stands close to the Cardon refinery, which belongs to the
Venezuelan state oil company PDVSAn in Punto
Fijo.Thomson
Reuters

After months of rumors, Venezuela's state oil company PDVSA
announced on Tuesday a bond swap for $7 billion in
outstanding debt to help alleviate some of the company's
financial stresses.

Eulogio del Pino, the company's president and Venezuela's oil
minister, said the swap would allow investors to trade PDVSA
notes due in October 2016, April 2017, and November 2017 in for
new bonds that will mature in 2020, according to the
Financial Times' Andres Schipani and Eric Platt.

And, notably, the swap is voluntary, meaning that whether or not
this works depends at least partially on the participation of
investors.

"If the government can persuade existing PDVSA bondholders to
participate that will be positive for other bondholders as it
might remove the near-term risk of default," argued the analysts
at Exotix Partners in a note to clients.

"It would push back up to US$6bn of bond payments over the next
18 months and buy some breathing space, to allow time to
implement reforms (and the recall vote)," they added.

However, the bond swap won't be the end of Venezuela's problems.
As Edward Glossop, Latin America economist at Capital Economics,
explained in a note to clients:

"...the bond swap is simply a case of kicking the can further
down the road. Similarly large debt repayments are due beyond
2017. In particular, a huge $4 billion principal
payment falls due in 2019. And worryingly, a total of $7.4
billion in principal payments are due in 2020 already, even
before accounting for any principal payments on the new
restructured bonds."